The job market might be about as good as it gets right now.
That sounds crazy, with almost 10 million Americans unemployed and an unemployment rate of 6.3%, still well above normal.
And, to be clear, the economy could still grow for years to come.
But dig into the characteristics of the unemployed, and there's an important trend that shows the jobs market is actually pretty strong already.
The short-term unemployment rate, measuring those out of work for fewer than 14 weeks, is currently about 3%. That's near the lowest it's been in half a century. In fact, we went more than three decades, from 1968 to 2000, without short-term unemployment becoming as low as it is today:
If you lose your job today, the odds of finding a new job in the next month or two are about as good as they've ever been. Maybe you'll take a pay cut, or have to move, but there's a good chance you'll find work quickly. Short-term unemployment is lower today than it was for all of the 1990s, which we consider one of the most prosperous decades in history.
There aren't many periods in history where short-term unemployment dropped much lower than it is right now. That’s important, because unemployment has a natural floor. If it gets too low, inflation rises, the Fed raises interest rates, the economy slows down, and unemployment goes back up. It's hard to know where that floor is, or if it's entirely tied to short-term unemployment. If history is any guide, though, we're near it.
But if things are so good, why is overall unemployment still so high?
Long-term unemployment -- those out of work for more than six months -- is still incredibly high historically:
What’s dangerous about this is that those stuck in long-term unemployed may never recover.
“I'm concerned that people who have been without work for years will lose skills, lose hope, and lose contact with the labor market,” Justin Wolfers, an economist at the Brookings Institute told me in 2012. "If this were to happen, we could see a generation remain jobless for much of their lives."
There’s some evidence this is happening. According to Princeton economist Alan Krueger, only 22% of those who fell into long-term unemployment in 2008 had steady, full-time jobs by the first half of 2013. Another one-third stopped looking for work, and just under a third were working part time – that’s part of why the long-term unemployment rate has come down. Less than 15% of those who went into long-term unemployment in 2008 are currently looking for work.
The longer you remain out of work, the harder it is to regain employment. According to the Council of Economic Advisors, those unemployed for less than five weeks have a 31% chance of getting a job in the next month. At 27 weeks of unemployment, it's 12%. After a year out of work, it's just 9%.
Even when the long-term employed do get back to work, it’s usually a big, permanent step down from where they were before. Testifying before Congress in 2010, Till von Wachter of Columbia University explained: "The average mature worker losing a stable job at a good employer will see earnings reductions of 20% lasting over 15-20 years" when laid off during a recession. And then there's the stress. In deep recessions like we just had, losing your job can reduce life expectancy by as much as 1.5 years, von Wachter found.
So, short-term unemployment is great, maybe about as low as it will get. And those stuck in long-term unemployment are increasingly, day by day, less likely to ever recover.
Things are looking better for the economy now than they have in years. But before you get excited about how strong a recovery could be, keep in mind: For most of the economy, things are already pretty good. Maybe about as good as it gets.
Check back every Tuesday and Friday for Morgan Housel’s columns on finance and economics.